The 8 Biggest Supply Chain Challenges in 2023 | Extensiv (2024)

While there’s no denying supply chain logistics are always evolving, it’s safe to say the pandemic has caused disruptions that most consumer goods brands weren’t accustomed to seeing. Now, in 2023, there are new supply chain and warehouse management challenges companies must tackle to remain successful within the competitive world of ecommerce.

With that said, a shift to online retail, increase in consumer confidence, pent-up demand, and amassed savings all add up to a tremendous opportunity for digitally native brands.

2021 supply chain overview

In some ways, global supply chains have been able to get back on track following a very tumultuous 2020. And yet, there were a number of supply chain disruptions that carried over into 2021 and beyond and caused even more difficulty for ecommerce retailers big and small.

Among the most common supply chain challenges in 2021 and 2022 were things like port congestion, manufacturing delays, and extreme weather events (including hurricanes, tornadoes, wildfires, and more). On top of that, there were also numerous outliers to contend with — like new COVID variants, factory shutdowns, and the now infamous situation with the trapped Ever Given.

Despite having to navigate so many natural phenomena and external factors, many retailers found creative ways to keep their revenue flowing and their customers satisfied.

Some brands made a shift to selling on backorder, while others opted to work with domestic providers rather than foreign suppliers. While these changes didn’t negate the issues with the supply chain, they did give brands more leverage and helped them make money during a strenuous (and often unpredictable) twelve months in retail.

The state of supply chains in 2023

Companies who survived the volatility of the last year likely did so by getting lean, selling through inventory, and focusing on their working capital.

At times, the supply chain crisis has no doubt felt unwieldy. Suppliers and manufacturers from all over the world have largely been put to the test — encountering massive stock shortages, lack of decoupled inventory, fulfillment delays, and lengthy backorders on their most popular inventory items.

We expect that supply chain challenges will persist (at least to some degree) for the remainder of the year. Generally speaking, these challenges are driven by increased consumer spend, sustained appetite for the convenience of buying online, and catch up required from last year’s bottlenecks. And yet, in spite of 2023’s fragile supply chain network, companies are acclimating to these changes by addressing inefficiencies head on and seeking to work smarter, not harder.

Supply chain challenges in 2023

The COVID-19 pandemic continues to disrupt the supply chain ecosystem with new and unforeseen barriers to both productivity and profitability. The following are 2023’s biggest supply chain challenges faced by product-based businesses from all over the globe.

1. Material scarcity

Insufficient inputs have been a concern since the pandemic began, due to an abrupt rise in consumer demand like never before. Even now, retailers and suppliers alike are struggling to meet this demand in the midst of limited availability for many parts and materials.

When speaking to various growth stage brands in our network, we’ve encountered everything from furniture manufacturers facing foam shortages, to bike manufacturers losing payment terms due to maxed out component suppliers.

In fact, a recent survey conducted by the Institute for Supply Management (ISM) revealed “record-long lead times, wide-scale shortages of critical basic materials, rising commodities prices, and difficulties in transporting products across industries.”

In light of these scarce inputs, a brand’s ability to sustain its growth is highly dependent on working capital to weather this downtime and ramp up for peak seasons.

2. Increasing freight prices

Contrary to initial expectations, the need for container shipping has increased considerably throughout the pandemic. With worldwide lockdown measures inciting a surge in ecommerce sales, the response has been a greater import demand for raw materials and manufactured consumer goods (a large percentage of which are moved in shipping containers).

And since this demand was much more substantial than anticipated, it was met with insufficient shipping capacity and an unprecedented shortage of empty or available containers.

As it often does, this scarcity has led to a large spike in pricing. In just the last year, freight rates from China to the West Coast have jumped by a whopping 240%.

3. Difficult demand forecasting

Demand forecasting in the middle of a global pandemic has added a new layer of complexity to many companies’ supply chain management. The onset of COVID-19 essentially shattered the forecasts for countless retailers and suppliers of consumer goods/services, leaving them without a guide as to how much inventory to stock or manufacture at any given time.

The challenge, then, has come from trying to improve predictions for customer demand, while in many ways having to rely on gut instinct rather than data-driven research. In this situation, supply chain managers are encouraged to abandon their bias, pursue new data sets for forecast models, and continually refine their results for the greatest level of accuracy.

4. Port congestion

Port congestion caused by the pandemic remains one of the top challenges for the world’s supply chains, seeing as port owners, carriers, and shippers are collectively still scrambling for a viable solution to this problem. Congestion occurs whenever a ship arrives at a port but cannot load (or unload) its freight because that station is already at capacity.

Although the loading/unloading process typically goes according to plan, labor shortages and social distancing associated with the pandemic have notably steered things off course (creating major bottlenecks at a number of busy global docks).

Due to this congestion and the backlog it’s created, a myriad of companies are unable to get their goods out the door on time — which means carriers are also unable to adhere to their specified delivery commitments.

5. Changing consumer attitudes

Consumer attitudes and behaviors have changed in some big ways during the pandemic, as well, like lowering the threshold for delivery times and raising the requirements for a positive customer experience.

The challenge comes in having an agile supply chain that can harness the power of automations to optimize fulfillment and handle accelerated demand with ease. An excellent example of this supply chain flexibility comes from multichannel order fulfillment services and inventory management software.

“The pandemic drove ecommerce demand to an all-time high. While a rise in order volume was a plus for merchants, new infrastructural needs and supply chain disruptions were major points of concern and the subsequent focus for our clients. Strategically, one of our biggest takeaways was the relationship management with customers through shared product forecasting, a defensive tactic that served to prevent negative experiences and maintain brand integrity.”

— Daniel Gdowski, VP of Marketing at ShipMonk

6. Digital transformation

When it comes to supply chain operations, digital transformation and IoT can be a mixed blessing. With that said, there are several technologies with the potential to enhance the way we approach the traditional supply chain, including: artificial intelligence, drones and robots, electric vehicles, and on-demand delivery.

But even though these systems/services are intended to make ecommerce processes more efficient and cost-effective in the long run, the challenge lies in implementing them across a company’s existing supply chain operations.

It takes time and organizational realignment to put these technologies into action, particularly when working with multiple warehouses or omnichannel selling. And yet, supply chains must continuously evolve if they wish to stay ahead of the competition.

7. Restructuring

There’s no doubt that restructuring is making major waves among modern retail brands. This process can take many different forms, from reshoring, to changing suppliers, to signing contracts with all new carriers. The challenge in terms of restructuring is to decide when it’s the right time for a change and how to do so as seamlessly as possible.

For example, switching suppliers has to be carefully coordinated so that you don’t run out of inventory during the transition period. This will require you to keep a healthy amount of safety stock on hand, which can prevent a stockout (and lost sales) should demand surge while you’re waiting for replenishment or for the contracts to be finalized.

The same can be said when your company is reshoring, as well. It’s imperative that you have enough safety stock available in the event that the transfer takes longer than expected.

8. Inflation

Although it's too soon to say for sure, there’s a strong chance 2023 will be remembered as the year of inflation. While much has been said about inflation in the United States, the reality is, quite a few countries around the world are now dealing with the highest inflation in decades.

As this period of inflation stretches on, businesses must be prepared for cost increases related to the procurement of raw materials, finished products, and more. The consequences of these climbing costs often translate to excess or surplus inventory, mounting storage fees, smaller margins, and lowered revenue for your product-based brand.

With that in mind, the challenge becomes accepting the reality of inflation while doing your best to minimize its impact. Combating inflation begins with understanding how it affects your specific business, and then taking steps that’ll help you survive these trying times.

Fortunately, your company can fix inefficiencies with its inventory management and reassess its variable costs (payroll, advertising, etc) to reduce operational overhead when/where possible. This way, you’ll save some money to hopefully balance out the rising costs of inflation.

How to overcome supply chain issues

As you can tell, the pandemic has presented some unique supply chain challenges that ecommerce retailers continue to tackle on a daily basis. The good news is, there are a multitude of ways to mitigate major issues and avoid running out of inventory ever again.

And though there’s not a one-size-fits-all approach to supply chain planning, combining a few different techniques can provide complete and comprehensive outcomes.

Keep liquidity in your business

Protect your business with flexible access to capital. After all, having cash on hand is often the difference between meeting demand and going out of stock.

With sharp ebbs and flows of inventory expected in the coming months, it’s wise to consider a flexible line of credit that can be used to stock up on evergreen or perennial items in high demand and pay for priority manufacturing/shipping (or even air freighting as needed).

Diversify sourcing in your supply chain strategy

Broaden your range of sourcing, perhaps geographically, to increase choice and abundance within your supply chain. By developing multiple supplier relationships, it’s easier to become more flexible and adjust to a constantly changing market (i.e. during a prolonged pandemic that alters the entire global economy).

Many times, diverse sourcing is the key to a brand’s success, as it readily locates goods and materials while maintaining profits, growing customers, and boosting innovation.

Work with a freight forwarder

Partnering with one or more freight forwarders can help you manage and track the shipment of your goods. While freight forwarding companies are accountable for the transportation of products from one destination to the next, they can also arrange the entire process for shippers and negotiate the best price and/or fastest route.

Retailers who work with a freight forwarder benefit from their vast knowledge of the supply chain, in addition to their ability to handle unforeseen obstacles in real-time (such as delayed goods or rerouted services). What’s more, freight forwarders are able to negotiate at scale by aggregating shipments of smaller retailers.

Identify alternative shipping ports

Hedge your bets by seeking out alternative ports to meet your fulfillment needs and stay on schedule — regardless of unforeseen events or a sudden spike in customer orders. With DTC brands increasingly dependent on Asian imports, the sister ports of Los Angeles and Long Beach have become the bedrock of Transpacific trade.

Given that these ports account for over 25% of North America’s ocean freight, it’d be wise to identify a fail-safe in case of congestion or similar inefficiencies.

Improve demand forecasting

Without fail, the best way to improve forecasting is by using automations to calculate these metrics on your behalf. Ecommerce sellers are always looking for a balance between their inventory levels, warehousing costs, and the demand from their customers to prevent stockouts or inventory shortages.

With automated inventory alerts, forecasting tools, and cash on hand, merchants can stock up with confidence based on predicted product demand or historical sales. What’s more, prioritizing forecasting can streamline inventory counts and reduce excess overhead fees.

Stay resilient

Retailers who stay resilient in the face of supply chain challenges have the best chance for success. By remaining flexible, your company can better adapt to unforeseen circ*mstances and make strategic pivots as necessary. This might mean coming up with better solutions to complex problems with your inventory, technology, marketing, and more.

For example, you can review your inventory levels to determine which products need to be bundled, discounted, or possibly just promoted. In doing so, you can almost immediately increase your cash flow and minimize lost revenue from dead stock inventory.

Alternatively, you might want to upgrade your tech stack to help you stay afloat and stand out among the competition. Using comprehensive inventory software, your brand can call out inefficiencies, reduce errors, and optimize its inventory in a big way.

Looking forward: post-pandemic supply chain management

Throughout the last few years, companies of all sizes have had to reimagine their operational strategies in hopes of revitalizing their bottom line and retaining their customer base.

But amid global crisis and supply/demand difficulties, brands are somehow buildingresilience against future shocks and repairing their fault lines via SCM transformation.

The pandemic has not only amplified the need for greater supply chain optimization, but the need for faster decision-making, too. That’s why, according to Gartner (a leading research and advisory company): “Through 2024, 50% of supply chain organizations will invest in applications that support artificial intelligence and advanced analytics capabilities.”

What this means is, it will be increasingly important for today’s supply chain leaders to adopt a holistic perspective with AI and analytics in the years to come. Your business can and should leverage technology like Skubana to get a good pulse on everything from customer relationship management to bringing more visibility to your supply chain.

Once you have artificial intelligence and analytics to inform inventory build, make sure you have flexible access to capital so that you can place your orders when you need to and ultimately, meet customer demand.